Cash rate break a good decision during lull - reposted by andre di cioccio

With consumer and business spending, building approvals, housing finance and retail sales showing lacklustre results, Australia’s largest independently-owned mortgage broker, Mortgage Choice, believes the Reserve Bank has made an accurate decision in keeping the cash rate at 4.5%.

Existing and potential property owners will be elated to hear the cash rate is on hold for a second month, as they reassess their budget for the new financial year. It means lenders will be much less likely to move mortgage interest rates up as winter takes hold.

Mortgage Choice said, “A ‘wait and see’ approach from the RBA is what borrowers need at the moment. Interest rates stood at an emergency setting over much of 2009, but they rose very quickly from then on and caught many people unaware.”

“We have not yet seen the full effect of the six official rate rises from October to May, or the effect of further mortgage rate increases by a number of lenders.

“Although employment is solid, our resource sector is strong and many property markets are moving at a healthy pace, consumer spending is subdued and sentiment has dropped, just as housing finance demand has over several consecutive months now. We’re also seeing a slowing of housing prices and global economic uncertainty continuing.

“Slowed housing finance demand and prices is a good thing, however, for those looking to enter the market. Less competition means some local areas may become a buyers’ market. Anyone with a healthy deposit or equity, a steady income, few debts, a good credit record and solid employment, may find they are well placed to build upon their financial portfolio now by buying property.

“Greater credit should also be given to Australian mortgage holders, the majority of whom are coping well with ten-year average standard variable interest rates.

“Clever borrowers used the relief of decades-low rates over late 2008 and most of 2009 to get ahead with their repayments and prepare for changes to rates and their financial situation. Many continue to do so. Our 2010 Recent First Homeowners Survey found 64% of respondents were making extra repayments, with the majority contributing as much as possible. This not only helps a borrower create a financial buffer, it shaves time off their loan term and off the overall interest owed.

“Still, we hope the RBA keeps the cash rate on hold for at least another quarter or until we see an upturn in consumer and business sentiment, spending and confidence. Another tap on the brakes may have a heavier effect than expected.”